More empty spaces

By Meg Hill

Property vacancies in Southbank have reached a long-term high as the industry has been hit by compounding factors related to the pandemic.

According to SQM Research, vacancy rates in Southbank reached 16.8 per cent in May and 16.2 per cent in June. The recorded rate in June 2019 was 3.9 per cent.

Loic Mamet, a property manager at Belle Property Melbourne, said the real rate could be well above that figure.

“The way vacancy rates are calculated is by counting properties that were already under management, where the tenants have moved out and new ones haven’t been found,” he said.

“But any property that used to be a short-stay, for example, or where a landlord is moving out of their home, any property that is going on the rental market for the first time isn’t included.”

“If you’re looking into how many of those properties are out there, I think there may actually be more of them than the ones with tenants moving out.”

In May, Southbank News reported on the collapse of the short-stay industry and a flood of short stay properties onto the rental market. Mr Mamet said the situation had worsened since then.

“It’s a bit like what we had a few months ago but everything is on steroids now, where things were tough its even tougher,” he said.

“Some areas near the city are still doing okay, they aren’t booming like they were pre-COVID, but they’re still leasing, there’s still tenants around, the prices are down maybe 5 per cent in.”

“But then if you go into Southbank and the CBD, because of the oversupply, I’ve seen some properties come down by 30 or 35 per cent in their rental value, and that’s a lot.”

Mr Mamet said the situation was “completely unprecedented”.

“Usually we’re talking about how much rental prices increase every year and now, for the first time, were back to rental prices sometimes from 2014 or 2013 which is a big drop,” he said.

“If it were sales prices people would say it’s catastrophic, but with rental it’s more volatile, it could be back to normal next year if this is over.”

“We know that things would change and people would want to come back to the CBD and work and travel to Melbourne when this is over.”

Mr Mamet said the over-supply was due to the continuing impact of border closures and lack of travel but was compounded by other factors.

“Underemployment is definitely one part of it, there’s a lot of tenants moving in with friends or into share scenarios where it might be cheaper,” he said.

“There’s also the people who are moving for more space, they realise they don’t need to be in the CBD anymore and everyone’s working from home, so they’re moving out for a better lifestyle.”

David Anderson, a property consultant at Nelson Alexander, said it would be a while before the effects on the commercial market could be properly seen and assessed.

He said this was due to help given to tenants and owner-occupiers through short-term assistance from banks and governments and private arrangements with landlords, as well as the longer leases in the commercial market compared to residential.

“There’s been government directives to enable private negotiations between tenants, owner-occupiers, landlords and banks and that information doesn’t get reported, so it’s hard to measure exactly what is happening,” he said.

“We might not be able to see what’s going on until well after Christmas, once that initial six month period of government direction is up, and that is going to be a bit like what people were foreseeing about job keeper ending – will the government put in further directives? Will the banks extend loans?”

“If there’s a shift to move it all back to normal, pre-pandemic rates, it could hit the industry quite hard.”

Mr Anderson said the effect of moving to work-from-home arrangements would also likely be delayed.

“People are saying we don’t need this level of office space that we’ve had in the past, but commercial lease are generally of a longer nature and you can’t necessarily change mid-stream,” he said.

“Most leases in this area on a minimum of three years. It might be 18 months or more before we find out how much people have elected to reduce their office leasing and that’s only going to come out when we have a situation where the majority of people could go back to their office.”